Fascinating interview in the NYT magazine section today with Ray Fair; I find Fair’s primary thesis — that nearly all behavior can be attributed to economic self-interest — grossly oversimplifies the complexities of humanity. Indeed, one of the greatest flaws of classical economics has been the inability to explain away many of the behaviors of Humans which do not make coherent financial or economic sense. It’s as if they cannot deal with anything beyond quantifiable dollars and cents.
The fundamental flaw in the field is that Human Beings are Rational. We are not.
There is an entire universe of behavior which is economically contradictory. People do too many things which simply are against their own best financial interests — from smoking cigarettes to riding in cars without seatbelts to clipping coupons, there are far too many examples to list here.
I find Fair’s methodology to be less historically accurate than claimed. He predicted Bush Senior’s victory in 1992; Further, consider allt he instances when the eocnomy was doing very well — especially when measured by Job creation, and the incumbent party lost the presidency.
Here’s the kicker to all this: Despite Fair’s predictions for a Bush landslide, he is a Kerry supporter! (at least, that’s his claim)
Here’s the obligatory excerpt:
Are you a Republican?
I can’t credibly answer that question. Using game theory in economics, you are not going to believe me when I tell you my political affiliation because I know that you know that I could be behaving strategically. If I tell you I am a Kerry supporter, how do you know that I am not lying or behaving strategically to try to put more weight on the predictions and help the Republicans?
I don’t want to do game theory. I just want to know if you are a Kerry supporter.
Backing away from game theory, which is kind of cute, I am a Kerry supporter.
I believe you entirely, although I’m a little surprised, because your predictions implicitly lend support to Bush.
I am not attempting to be an advocate for one party or another. I am attempting to be a social scientist trying to explain voting behavior.
To me, the best thing about an incumbent defeat is that it will force Ray Fair to completely revisit his underlying assumptions about people in the broader macro-environment.
There’s a reason behavioral economics has been on the rise for the past decade; We are often irrational. Perhaps such a predictive failure will force Economics as a field to peer further into the inherent irrationality of Human Beings . . .
UPDATE: August 16, 2004 11:30am
A recent study (Ned Davis Research) on post WWII presidential campaigns determined that while “job growth does not guarantee a victory, sluggish job growth historically has hurt the incumbent party.” The party in power lost the presidency whenever the change in non-farm payrolls during the President’s term was below 5%. At present, its at -0.8%.
Consider the following:
–Gerald Ford had 5.7% non-farm payroll growth — but lost re-election due to his pardon of Richard Nixon.
–Jimmy Carter (12.1% payroll growth) lost due to runaway inflation and the Iran hostage crisis.
–Al Gore (9.0% payroll growth) lost in large part cause of Clinton’s scandals
–Lyndon Johnson (9.5% payroll growth) didn’t even run for a 2nd term; His prospects for re-election were so poor due to the Viet Nam war he simply bailed.
Yet all 4 of these Presidents enjoyed fairly robust job growth; How can that be? Very good job growth, and they still lost!
Might this mean that its sometimes more than mere economics?
Bush Landslide (in Theory)!
Interview by DEBORAH SOLOMON
NYT, August 15, 2004